Tuesday, May 28, 2013

Can "Abenomics" change the national discussion on reviving America's economy?

Posted By on 05.28.13 at 01:09 PM

Japanese prime minister Shinzo Abe
  • AP Photo/Shizuo Kambayashi
  • Japanese prime minister Shinzo Abe
I've just seen a wave crash over journalism. Ten days ago I had never heard of Abenomics. The introduction was made by the Economist, a weekly magazine with a reputation for spotting and analyzing economics trends that matter. The May 18-24 edition arrived bearing a cover that likened Japan's new prime minister, Shinzo Abe, to Superman. Inside, the Economist told me this:

He has put Japan on a regime of 'Abenomics', a mix of reflation, government spending and a growth strategy designed to jolt the economy out of the suspended animation that has gripped it for more than two decades. He has supercharged Japan's once-fearsome bureaucracy to make government vigorous again. And, with his own health revived, he has sketched out a programme of geopolitical rebranding and constitutional change that is meant to return Japan to what Mr Abe thinks is its rightful place as a world power.

Mr Abe is electrifying a nation that had lost faith in its political class. Since he was elected, the stockmarket has risen by 55%. Consumer spending pushed up growth in the first quarter to an annualised 3.5%. Mr Abe has an approval rating of over 70% (compared with around 30% at the end of his first term). His Liberal Democratic Party is poised to triumph in elections for the upper house of the Diet in July. With a majority in both chambers he should be able to pass legislation freely.

Taken by itself, the Economist's coverage of Japan was compelling enough. But it opened the floodgates. The day after I read what the Economist had to say, I spotted a parallel article in the New York Times:

The stock market has soared more than 60 percent over the past year, and the yen has lost more than a quarter of its value, lifting corporate earnings in a country that is dependent on exports.

Last week, Abenomics got an early report card. Japan's $5 trillion economy grew at a robust annualized pace of 3.5 percent in the first quarter, and—most important for Mr. Abe's notion that consumer confidence is key—household consumption accounted for the lion's share of that growth. Although there were some signs of weakness, most notably a drop in business investment, the numbers were a promising sign that the good news was not confined to financial markets.

The Washington Post soon weighed in with a report headlined With 'Abenomics,' Japan catches a sense of revival: "After two decades of chronic recession, Japan again feels like a boomtown. Its biggest companies are raking in money. It has the world's best-performing stock market. The latest forecasts suggest Japan, in the next year, could grow more quickly than any wealthy nation but China."

Reuters caught the wave: "Less than six years after his humiliating departure, Abe, 58, is back in office for a rare second term. He is riding a wave of popularity spurred mainly by voters' hopes that his prescription for fixing the economy will end two decades of stagnation. The policy, known as 'Abenomics', is a mix of monetary easing, stimulative spending and growth-inducing steps including deregulation in sectors such as energy."

These were not tub-thumping articles. They observed that Abenomics has a long way to go before it truly proves itself, and they showed concern over the jingoistic elements of Abe's agenda. But the collective message was unmistakable: Abenomics is a breath of fresh air.

And needless to say, Paul Krugman approves. Krugman, a Nobel Prize-winning economist who doubles as a New York Times columnist, has been preaching deficit spending for years as the best way for the U.S. and Europe to ignite their economies. Call this strategy Keynsianism and it's ignorable—a nostrum decades past its sell-by date. As Abenomics it's cutting-edge. Krugman wrote to applaud:

In a sense, the really remarkable thing about 'Abenomics'—the sharp turn toward monetary and fiscal stimulus adopted by the government of Prime Minster Shinzo Abe—is that nobody else in the advanced world is trying anything similar. In fact, the Western world seems overtaken by economic defeatism.

In America, for example, there are still more than four times as many long-term unemployed workers as there were before the economic crisis, but Republicans only seem to want to talk about fake scandals. . . . Still, at least we're growing. Europe's economy is back in recession, and it has actually grown a bit less over the past six years than it did between 1929 and 1935; meanwhile, it keeps hitting new highs for unemployment. Yet there is no hint of a major change in policy. . . .

It would be easy for Japanese officials to make the same excuses for inaction that we hear all around the North Atlantic: they are hamstrung by a rapidly aging population; the economy is weighed down by structural problems (and Japan's structural problems, especially its discrimination against women, are legendary); debt is too high (far higher, as a share of the economy, than that of Greece). And in the past, Japanese officials have, indeed, been very fond of making such excuses.

The truth, however—a truth that the Abe government apparently gets—is that all of these problems are made worse by economic stagnation. A short-term boost to growth won't cure all of Japan's ills, but, if it can be achieved, it can be the first step toward a much brighter future.

As Krugman recalled, the booming Japanese economy of the 1970s and 80s gave Americans the willies. "Business best sellers put samurai warriors on their covers, promising to teach you the secrets of Japanese management," wrote Krugman; "thrillers by the likes of Michael Crichton portrayed Japanese corporations as unstoppable juggernauts rapidly consolidating their domination of world markets. They were doing everything right; we were doing everything wrong."

It was almost impossible for Americans to believe during the postwar era of the so-called Japanese economic miracle that Japanese capitalists put their pants on one leg at a time, same as ours. But in the early 1990s the Japanese economy went south, and American dread gave way to American condescension. As often happens when a bogeyman turns out to be not half as frightening as we'd made it out to be, our screams were followed by our laughter. Of course the hyperdisciplined Japanese managerial style proved a disaster over the long haul—there's just no beating Yankee creativity and gumption! And for those determined to keep fearing that our vaunted entrepreneurialism was still no match for the infinitely subtle and ruthless Asian mind—well, now we had the Chinese for that.

But our fear of Japan is such a recently smothered fire that it can be reignited in the time it takes to read an article. Everyone will soon be reading and hearing about Abenomics: the memetic power of the mass media on a roll is overwhelming. And political leaders demanding fiscal restraint for reasons as ideological as economic will have to try to explain away a country that seems to be successfully spending its way out of misery. And that country will be Japan. It is very difficult to be dismissive of Japan.

Last Saturday the Tribune editorial page asked "What's the matter with Europe?"

The symptoms: "Europe may have avoided a complete economic meltdown, but it remains in a deep malaise. Italy and Spain reported large economic contractions in the first quarter. Tiny Cyprus, a eurozone member, has entered its third year of recession. Greece reported its 19th quarterly contraction. Unemployment stands at double-digits in many nations and youth unemployment is far worse."

The prescription: "Austerity is unpopular, but it is necessary, and it will work. Europe's public payroll has ballooned over the past decade. Government benefits and subsidies have become unsustainable. They have to be scaled back. Borrowing still more money to keep the status quo afloat isn't a viable option. The days of fiscal excess and indulgence must give way to a more disciplined approach."

This editorial position is neither right nor wrong. It's obsolete. The world's economic alternatives can no longer be represented as austerity and indulgence. The Japanese hardly lack discipline, and they're going in a third direction. The argument for austerity is now unpersuasive without an explanation of why the Japanese are certain to fail.

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